Gold and Silver Prices Outlook for September 2012

Precious metals prices didn’t do much during the first couple of weeks of August but then they both rallied as the renewed expectations of another stimulus plan by the Fed reignited the bullion market. The rise of Euro/USD coincided with the recovery of precious metals prices. Will this upward trend continue during September? The main events of the month will continue to be around the future steps of the FOMC regarding its stimulus plan (i.e. a third quantitative easing plan) and the EU debt crisis. The FOMC will convene during the second week of September. The ECB will announce its interest rates and might consider a bond purchase program to help struggling countries such as Spain and Italy in raising debt. 

Let’s analyze the precious metals market for August and provide a short outlook for gold and silver prices for September 2012.

Gold and Silver August 2012

Gold and silver rates hadn’t done much during the first half of the month but then they started to pick up as they both rallied during the second half of the month.  Most of the growth came in three separate days: on August 21st, following the speculations that the ECB will commence its bond purchase program; on August 23rd  following the publication of the minutes of the recent FOMC meeting; on August 31st, following Bernanke’s speech at Jackson Hole. 

During the month, gold rose by 4.52%; silver, even more than gold, hiked by 12.64%. This was the best performing month for both precious metals since January 2012.

Let’s divide August into two parts: the table below divides the month at August 13th; I divide the month in order to emphasize the sharp change in the direction of both gold and silver rate; during the first part of August, gold edged down by 0.1% and silver price by 0.2%. During the second part of August, silver hiked by 12.9% and gold price by 4.7%.

Gold price outlook and Silver prices FORECAST us dollar euro percent change July 2012

During the first part of August, the U.S dollar slightly depreciated against the Euro; the Euro/USD currency pair is usually strongly correlated with gold and silver prices. During the second part of the month, the U.S dollar sharply depreciated against the Euro and Canadian dollar but appreciated against Australian dollar; this shift might have also contributed to the rally of gold and silver prices during the second part of the month.

The chart below presents the changes of gold and silver prices during August, in which the prices are normalized to 100 on July 31st 2012.

Gold prices forecast & silver price outlook September 2012

The next chart shows the shifts in the ratio of gold to silver (gold price/silver price) during August; the ratio had a downward trend mainly during the second part of the month. The ratio rose as silver price has out-performed gold price. In the last week of August the ratio ranged between 53 and 54.

Gold and Silver prices ratio 2012 July

 

Here are several factors that may have contributed to the fall of gold and silver prices during August:

 

  1. The decision of the FOMC in its recent meeting to keep its policy unchanged again;
  2. The deprecation of major currencies including Aussie dollar during the month;
  3. The delay of ECB to commence its bond purchase program;
  4. The decision of ECB to keep the interest rate unchanged at 0.75%;
  5. The EU GDP contracted during Q2 2012 by 0.2%; this news may have affected the Euro and consensually bullion rates;

Here are several factors that may have contributed to the rally of gold and silver during the month:

  1. The higher than expected growth in the U.S labor market;
  2. The publication of the minutes of the FOMC meeting that rekindled the expectations of another QE program in the near future;
  3. Ben Bernanke’s speech regarding the Fed’s monetary policy at Jackson Hole that also opened the door for QE3;
  4. The rally of the Euro/USD during the second part of the month;
  5. The ongoing FOMC pledge to keep rates low until late 2014;
  6. The news regarding the slight improvement in the U.S Philly Fed Index;
  7. The expectations of the market from ECB to introduce of bond purchase program;
  8. The U.S. federal deficit expanded by 69 billion during August 2012; this expansion raises a bit the uncertainty level in the market;
  9. The slight improvement – from 1.5% to 1.7% – in the U.S GDP for Q2 2012.

FOMC Meeting – Update

In the recent FOMC meeting which was held on July 31st and August 1st, the Fed didn’t make any changes in its policy. But the minutes of latest FOMC meeting revealed that the Fed is leaning towards introducing another stimulus plan in the near future. The speech that Bernanke gave in Jackson Hole also left the door open on QE3 in 2012. I still think it could be awhile before the Fed will issue QE3.

There will be another FOMC meeting between September 12th and September 13th; if there will be big headlines from this FOMC meeting (i.e. stating or even just hinting of another quantitative easing), it could rally the precious metals market.

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